Shell abandons oil refinery plans for Sarnia area
SARNIA, Ont - Shell Canada abandoned plans Tuesday for a multibillion-dollar refinery expansion near Sarnia, Ont., which would have processed up to 200,000 barrels a day of heavy crude from the company's northern Alberta oilsands operations.
The firm, wholly owned by Royal Dutch Shell (NYSE:RDS.A), told its employees to stop pre-development and engineering work on the project that will be shelved indefinitely.
"This decision is a very difficult one for Shell and it is only taken after careful consideration,'' Amrik Ahluwalia, Shell's general manager of manufacturing expansion, said in a statement on the company's website.
The announcement came after a comprehensive review, said Shell Canada's Graham Boje, who oversees Shell's refinery expansions.
"There are a range of conditions that we assess and evaluate from availability of resources, equipment costs, long lead times on equipment, the inflation that we've seen in oil and gas projects, he said.
In addition to the ballooning capital costs, oil companies have also had to contend with the spectre of reduced consumer demand that could result from soaring fuel prices.
Shell's existing 72,000-barrel-a-day facility in Sarnia, a border city that hosts an array of refineries and petrochemical plants, will continue to process oil from a variety of different sources, including some from Alberta.
The company is spending billions of dollars to expand production from its Athabasca oilsands operations near Fort McMurray, Alta.
It had also planned a $27-billion expansion to an upgrading facility adjacent to its Scotford refinery near Edmonton, which would turn the raw oilsands feedstock into oil that can be more easily refined into gasoline and other products.
"That Scotford refinery is now full, so we'll be looking at other options and the Sarnia refinery project was one of those options,'' said Janet Annesley, a spokeswoman for Shell's oilsands division.
"We've identified a portfolio of options to integrate oilsands crude.''
Those could include existing refineries on the West Coast and along the U.S. Gulf Coast.
Shell Canada first announced its plan to study the Sarnia project in November 2006.
It carried out early design work and initiated a comprehensive environmental assessment, consulting extensively with stakeholders in the area. The company also optioned 2,400 hectares of property southeast of Sarnia for the refinery.
Lambton County Warden Jim Burn told the Sarnia Observer newspaper he was disappointed to hear the project was dead, since it would have created several jobs in the area.
"They're dismantling the team that has been working on it. It's pretty much not going to happen at this time anyway,'' he said.
But Walpole Island Chief Joseph Gilbert, who had been concerned about the project's environmental effects, said the decision is a win for both the First Nation and the wider community.
"We've never been against progress, but we expressed concern (about) what the impact would be on future generations.''